One way that you can earn high returns is utilizing a technique called "buying dividends." Buying dividends is the process of buying a stock just before it goes ex-dividend and selling it shortly after the ex-dividend date at the same (or at a higher) amount than the cost price.

The ex-dividend date is the date after which a buyer of the stock is no longer entitled to the dividend. In other words, if an investor purchases a stock on or after the ex-dividend date, the investor will not receive the dividend; however, if the stock is purchased prior to the ex-dividend date, the investor will receive the dividend on what is called the payment date. Another way to look at it is an investor can sell a stock on the ex-div date or later and still get the dividend.

Does it work? Let me give you an example. I bought United Online (UNTD) for $10.89 a share on April 11 and sold it on May 12, the ex-dividend date, for $11.56 a share, resulting in a return of more than 6% before commission and before adding in the dividend, but that's really not relevant. The stock pays a dividend of 20 cents a share, which provided a return of 1.8% over 30 days. Annualized, it worked out to about 22%. (Full disclosure: I still owns UNTD in a retirement account.)

But I need not have tied up my money for a month. I could have bought the stock for $11.31 -- the closing price on Friday, May 9 -- and sold it Monday, May 12, for $11.91 (that day's closing price). The gain on the stock was 60 cents plus the 20-cent dividend is a return of 80 cents, or 7%, over a period of three days (before commission).

Generally, stocks are supposed to drop by the amount of the dividend on the ex-dividend date, similar to mutual funds, which always drop by the dividend amount. But in strong markets, the price of the stock can hold its value. This technique works often in bull markets, sometimes in flat or choppy markets, but for bear markets? Forget it.

Sometimes you can sell the stock on the ex-dividend date, sometimes you have to hold the stock for a few days, and sometimes you have to hold the stock for a few weeks in order to sell the stock at what you paid or higher. In other words, this technique doesn't always work. But if it is a stock worth holding for the long term, what do you have to lose?

If you just want to buy a stock for the long term, look for the best ones that pay quarterly or provide monthly dividends. But if you are looking for a quick return in a short period of time, you might want to try buying dividends.

The following are seven stocks with relatively low P/E ratios, low PEG ratios, high yields and are going ex-dividend next week.

Genesis Lease (GLS) ex-div date: 5/19/2008 yield: 11.75% P/E: 15 PEG: 1.38 Dividend: 0.47

Partner Communications (PTNR) ex-div date: 5/23/2008 yield: 6.20% P/E: 12 PEG: 1.76 Dividend: 0.35

Advanta (ADVNB) ex-div date: 5/21/2008 yield: 8.90% P/E: 6 PEG: 0.51 Dividend: 0.2125

Advance America, Cash Advance Centers (AEA) ex-div date: 5/22/2008 yield: 5.90% P/E: 14 PEG: 1.17 Dividend: 0.125

Journal Communications (JRN) ex-div date: 5/22/2008 yield: 5.41% P/E: 10 PEG: 1.42 Dividend: 0.08

Community Capital (CPBK) ex-div date: 5/21/2008 yield: 4.46% P/E: 10 PEG: 0.99 Dividend: 0.15

Carnival (CCL) ex-div date: 5/21/2008 yield: 3.76% P/E: 14 PEG: 0.96 Dividend: 0.4

By the way, the stocks that pay semi-annual dividends make dividend payments that are on average higher than the payments made on quarterly paying stocks, so it may we worth taking a closer look at dividend buying with those stocks.


By Stockerblog.com

Author owns UNTD.